Monopoly

15
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Figure 1 Economies of Scale as a Cause of Monopoly

Cost

Average
total
cost

0 Quantity of Output

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 Figure 2 Demand Curves for Competitive and Monopoly
Firms

(a) A Competitive Firm’s Demand Curve (b) A Monopolist’s Demand Curve

Price Price

Demand

Demand

0 Quantity of Output 0 Quantity of Output

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Table 1 A Monopoly’s Total, Average,
and Marginal Revenue

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 Figure 3 Demand and Marginal Revenue Curves for a
Monopoly

Price
€11
10
9
8
7
6
5
4
3 Demand
2 Marginal (average
1 revenue revenue)
0
–1 1 2 3 4 5 6 7 8 Quantity of Water
–2
–3
–4

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 Figure 4 Profit Maximization for a Monopoly

Costs and
Revenue 2. . . . and then the demand 1. The intersection of the
curve shows the price marginal-revenue curve
consistent with this quantity. and the marginal-cost
curve determines the
B profit-maximizing
Monopoly quantity . . .
price

Average total cost

A

Marginal Demand
cost

Marginal revenue

0 Q QMAX Q Quantity
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 Figure 5 The Monopolist’s Profit

Costs and
Revenue

Marginal cost

Monopoly E B
price

Monopoly Average total cost

profit

Average
total D C
cost
Demand

Marginal revenue

0 QMAX Quantity

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 Figure 6 The Market for Drugs

Costs and
Revenue

Price
during
patent life

Price after
Marginal
patent
cost
expires
Marginal Demand
revenue

0 Monopoly Competitive Quantity

quantity quantity
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Figure 7 The Efficient Level of Output

Price
Marginal cost

Value Cost
to to
buyers monopolist

Demand
Cost Value (value to buyers)
to to
monopolist buyers

0 Quantity

Value to buyers Value to buyers

is greater than is less than
cost to seller. cost to seller.
Efficient
quantity
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 Figure 8 The Inefficiency of Monopoly

Price
Deadweight Marginal cost
loss

Monopoly
price

Marginal
revenue Demand

0 Monopoly Efficient Quantity

quantity quantity

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 Figure 9 Marginal Cost Pricing for a Natural Monopoly

Price

Average total
cost Average total cost
Loss
Regulated
price Marginal cost

Demand

0 Quantity

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Figure 10 Welfare with and without Price Discrimination

(a) Monopolist with Single Price

Price

Consumer
surplus

Monopoly Deadweight
price loss
Profit
Marginal cost

Marginal Demand
revenue

0 Quantity sold Quantity

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Figure 10 Welfare with and without Price Discrimination

(b) Monopolist with Perfect Price Discrimination

Price

Profit
Marginal cost

Demand

0 Quantity sold Quantity

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